Death Distribution

[Guest Lex]

A participant in a 401(k) Plan died. He is divorced and had not elected a new beneficiary (prior was the spouse). There is not a QDRO pending.

The document states that the next family member is the beneficiary. In this case it is the son (under ten) living with the former spouse.

How can a distribution be made to a minor? The minor cannot sign the forms electing a distribution or a form of payment. What about the tax consequences?

Please provide any insight/sources.

[mbozek]

Where the beneficiary is a minor the payment can only be made to a guardian or a conservator appointed by a state court. Usually the custodial parent will be named as the guardian or conservator. In some states a conservator can be appointed at a lower legal cost than a guardian. Funds must be desposited in an account in the name of the guardian/cons. for the benefit of the child. Guardian/cons. will sign all documents on behalf of the minor beneficiary. Since the minor is the beneficiary the benefits will be taxed to him. Both plan and parent need to retain counsel.

[Guest Lex]

Thank you or the information

[Guest asire2002]

Lex, just to clarify:

At the time of his death, the former spouse was designated as the beneficiary. Following the divorce, the participant did not designate a different beneficiary. Does the plan document automatically revoke spousal beneficiary designations in the event of a divorce? If not, I think the former spouse is still the beneficiary.

[mbozek]

Under a US supreme ct precedent handed down last year, the determination of whether the former spouse is the beneficiary is to be found in the plan document (This assumes that the participant did not remarry). If the plan does not provide for removal of an ex spouse upon divorce, then the ex spouse will have a valid claim for the benefits since state laws that remove the spouse as designated beneficiary upon divorce are preeempted by ERISA.

[Appleby]

It does not say here that the participant remarried.

Generally, the determination of who is the beneficiary (when the former spouse is still reflected within the documentation as the beneficiary), becomes an issue when the participant remarries. In this situation (assuming he did not remarry), it appears the former spouse is still the beneficiary.

[mbozek]

Yes unless the plan provides otherwise, e.g., removes the ex-spouse upon divorce.